Moly Mines set for cash injection

Moly Mines
is on the verge of securing $US500 million ($546 million) in debt finance for its Spinifex Ridge molybdenum project in Western Australia, as representatives from one of China’s biggest banks conduct on-site due diligence this week.

The Australian Financial Review understands representatives from either China Development Bank or the Export-Import Bank of China will begin due diligence today for the financing of Spinifex Ridge.

The Perth-based company has made a number of unsuccessful attempts to finance the project dating back to September 2007 when it completed the feasibility study.

Since then, Moly has halved the size of the development to reduce the capital required by more than $500 million and brought China’s Sichuan Hanlong Group in as a strategic partner last October.

Hanlong will invest $US200 million in two tranches to take a 55 per cent stake in the company plus arrange the $US500 million debt financing. About $US140 million will be used to retire Moly’s existing debt with a fund out of the US; the remainder is slated for the $600 million Spinifex Ridge development.

Moly Mines chief executive Derek Fisher declined to comment on the timing or identity of the Chinese bank he is expected to meet this week. “Once we get the investment by Hanlong which is due in the next couple of weeks that will be a big positive and a strong signal things are moving ahead," Dr Fisher said.

“Soon as we get that we’ll complete the detailed engineering and we expect to be in construction before the end of the year."

Earlier this month Hanlong - which has interests ranging from pharmaceuticals and alcohol through to LNG and hydroelectricity - struck a strategic partnership with North American group General Moly which has 80 per cent of the Mt Hope molybdenum project in Nevada.

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Hanlong will take a 25 per cent stake in the company for $US80 million and will secure and guarantee a $US665 million loan to develop the project.

In exchange Hanlong will be entitled to the remaining offtake for the project which equates to about half of total production of 50 million pounds a year.

“We’ve got a privately-owned Chinese group who appear to have taken a very Chinese view on the metal scene," Dr Fisher said.

“These guys are sticking their neck out when the Western companies are still sitting on the sidelines in terms of molybdenum. And here’s a group that’s moved out and picked up interests in the two biggest undeveloped moly projects in the world today."

The price of molybdenum, used in specialty steels, was trading around $US30 a pound until the end of 2008 when it plummeted to as low as $US8 a pound in 2008, and is now It is now fetching trading at about $US18 a pound.

“China is a big producer, it produces 20 to 30 per cent of the world’s moly but it’s been the supplier to the Asian steel industry largely over the last 30 or 40 years," Dr Fisher said.

“Now we’re seeing, with the massive expansion of the Chinese steel industry in China, China becoming a net importer for the first time last year and we don’t see that changing. If anything it's going to become worse."

Shares in Moly, which closed slightly higher at 87 cents on Friday, have risen about 3 per cent this year.